UK SMEs leave cash in current accounts, survey finds

Some 64% of UK SMEs keep some or all of their cash reserves in current accounts, according to a survey of 400 senior financial decision-makers.

The main reason is a desire to maintain liquidity, cited by 40% of respondents. Lack of time was next at 27%, followed by perceived difficulty at 25%.

The figures point to a gap between businesses that actively manage surplus cash and those that leave money in accounts that typically pay little or no interest. Many firms appear to prioritise access to funds even when the cash is not needed for day-to-day operations.

Almost half of SMEs (47%) do not have a documented strategy to monitor, allocate, and optimise cash holdings. Of the 53% that do, only half include measures to protect cash, while the same proportion do not manage it under formal allocation rules.

This suggests that many smaller businesses manage reserves without a clear framework for balancing liquidity, protection, and income. The study described this as a performance gap in cash management across the sector.

"Finance leaders are under increasing pressure to do more with less and find performance in areas that may have been previously overlooked. One such place is cash reserves. Our research exposes how, while many SMEs rightly engage in cash management plans, there are several common opportunities to optimise these plans for even more positive impact," said Lakhbir Sandhu, Chief Financial Officer at Flagstone.

Cash planning

The study also examined how businesses divide reserves between different uses. Nine in 10 SMEs said they segment their cash in some form, but the emphasis is on immediate operational needs.

Among those that segment cash, 70% hold funds for day-to-day activities such as payroll and routine expenses. By contrast, 55% keep a buffer for unexpected costs and urgent liquidity needs, while 48% set aside money for acquisitions, planned investment or other growth opportunities.

These figures suggest operational continuity remains the main driver of reserve planning. Longer-term uses for cash appear to receive less attention, even among businesses that already separate money into distinct pots.

"Whether by design or by accident, the lack of a formal, structured cash management strategy is likely to reduce visibility and limit opportunities to optimise returns," Sandhu said.

He also pointed out how businesses classify reserves across short-, medium-, and long-term needs. The survey identified this as an area where firms could change how they hold money without giving up access to funds needed at short notice.

"Segmenting cash reserves by short, medium and long-term requirements can help businesses earn returns on their longer-term savings while maintaining liquidity for cash they frequently need. Passive cash managers may segment their cash too unevenly for safety. Cash is mainly allocated to keeping the business running smoothly, but that limits flexibility to manage risk or pursue growth opportunities," Sandhu said.

Return trade-off

The report found that 64% of SMEs use current accounts to hold cash not needed for day-to-day operations. While 39% keep some cash in instant-access savings accounts, only 32% use fixed-term savings accounts and 24% use notice accounts.

This suggests many businesses still favour immediate access over yield, despite some fixed accounts with terms of one to three months offering rates above 4%. Cash left idle in non-interest-bearing accounts also loses value in real terms as inflation erodes purchasing power.

For finance teams, the issue is not simply where money is deposited, but how reserve policies are set and reviewed. Businesses without formal rules for cash allocation may be more likely to leave balances untouched in current accounts, even when some of that money could be moved into higher-return products with limited access restrictions.

The survey was conducted with the Centre for Economics and Business Research and Yonder Data Solutions. Flagstone said it oversees almost GBP £20 billion in assets under administration and is the UK's largest savings platform by number of banks and savings accounts on its panel.

"There's a clear opportunity for SMEs to balance earnings and access more strategically. Staggering cash across accounts that lock up funds for longer but offer better interest rates, alongside easy-access savings accounts that typically outperform current account alternatives, is one approach worth exploring," said Sandhu.